Calloway Real Estate Inv Trust 2

I do not own this stock (TSX-CWT.UN). I already have enough REITs stocks, as I currently hold both RioCan (TSX-REI.UN) and CDN Real Estate (TSX-REF.UN). These two are still on the dividend lists I follow of Dividend Achievers and Dividend Aristocrats (see indices). I also follow H&R Real Estate (TSX-HR.UN). See my website for stocks followed for all these companies.

Once you have 5 or 6 stocks, you might want to consider a REIT for diversification. REITs are an easy way to investment in real estate. Calloway and CDN have DBRS ratings of STA-3H and RioCan has a rating of STA-2M. DBRS rates bonds and income trust companies on a scale from 1 to 5, 1 being the highest rating. You can go to DBRS to find their ratings. Enter your company’s name and do a search to see if the company you are interested in has been rated. In depth research cost money, but you can get a simple rating from them for free.

If you invest in a REIT, you will want one that increases their dividend at least as high as inflation over the last 5 years. You would want one with a DBRS rating of at least STA-3. In addition to the scale from 1 to 5, you get a qualifier of H (high), M (medium) and L (low). You also do not want one that pays out too high a percentage of its Distributable Cash (DI) or Funds from Operations (FFO). Over 90% is too high.

Now, back to the REIT I am discussing today. The Insider Trading report shows that there is a bit of Insider Buying and a bit of Insider Selling. There is slightly more selling, but this report does not really tell us anything. The real thing of note is that Calloway has just issued 6.9M shares at $21.60 as of August 5, 2010.

When talking about the P/E ratio, it is so high it is not worth talking about. The Price/FFO ratio is 14 when the 5 year average is 13.5. I get a Graham Price of $10.27 and a stock price of $23.25. So the stock price is some 55% above the Graham Price. When looking at the Price/Book Value Ratio, I get one of 1.74 and the 10 year average of 1.25 is about 40% lower. The current yield of 6.7% is lower than the 5 year average of 7.7%. So, on all these points, the stock price is rather high.

When I look at analysts recommendations, there are a few Strong Buy, a few Buy and lots of Hold recommendations. (See my site for information on analyst ratings.) The main reason for Hold recommendations is that a lot of analysts feel that the stock is fully valued. They give a 12 month stock price below or at the current stock price. One thing that is liked about this company is its relationship with Wal-Mart. Calloway is expanding in Canada, which has at present a better economy than the US. (RioCan in contrast is currently expanding in the US.)

Calloway REIT is the largest owner of large-format unenclosed retail properties in Canada. Its web site is here Calloway. See my spreadsheet at cwt.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.